Combat rising inflation has driven up the cost of gas, groceries, and building supplies over the past year. At the same time, credit card rates and debt have increased as consumers struggle to keep up.
While mortgage rates are rising, home equity has also grown, with property values up 20% since March 2020. Homeowners can combat rising inflation by consolidating high-interest debt into a lower-rate mortgage, potentially reducing their monthly financial burden.
Consolidate with a Cash-out Refinance Loan
By refinancing your current mortgage into a new, larger loan, you can pay off your credit card bills at a much lower rate. With credit card rates averaging between 14% and 18%, you will save a lot in interest since 30-year fixed-rate mortgages are averaging just above 5% currently. Here’s how it works:
You start by applying with your lender for a cash-out refinance. We will then check to see how much equity you have in your home by calculating your home’s current market value minus your remaining mortgage debt. To be able to pull cash out of your equity, you typically need to have a loan-to-value ratio of 80% or below. This means that your mortgage balance must be no more than 80% of your home’s market value.
For example, if your home is currently valued at $300,000, you must owe slightly less than $240,000 (80% of $300,000) to qualify for a cash-out refinance.
Once we establish your equity, we will inform you how much money you can withdraw. We will originate a new mortgage loan that combines this amount with your current mortgage balance.
You can use the new loan to pay off car loans, credit cards, or keep the cash.
Your mortgage balance may be larger with a slightly higher rate and payment. However, paying off high-interest debt could save you money long-term.
A Debt Consolidation Loan Can Lower your Monthly Debt Payments – Combat Rising Inflation
Consolidating debt into one mortgage payment can lower monthly costs, easing your budget and improving your quality of life.
Before cashing out home equity, consider all costs, not just interest rates. Refinancing includes closing costs, which can be added to the loan balance.
You can adjust your mortgage length, affecting total interest. When done wisely, using home equity to pay off debt can benefit you and your family.
These materials are not from HUD or FHA and were not approved by HUD or a government agency and in some cases a home equity or refinance loan might result in higher finance charges over the life of the loan.